General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
February 26, 2018

Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, spoke at the European School for Management and Technology about the future of Europe and of the euro area in particular. He highlighted that the euro area is witnessing a full-fledged economic upswing. However, banks in several member states are still saddled with huge volumes of non-performing loans while some member states are still vulnerable due to high levels of public debt. He emphasized the need to overcome such weaknesses in the financial architecture in the euro area.

Mr. Dombret stated that the financial architecture in the euro area still has weaknesses, even after years of recovery and various far-reaching reforms. As far as the Banking Union is concerned, the debate has centered on the European Deposit Insurance Scheme (EDIS), which should be the third and final pillar of Banking Union. In this regard, the milestones concern realigning the European resolution framework and its national counterparts, and banks building up bail-in-able capital to meet their Minimum Requirement for own funds and Eligible Liabilities (MRELtargets. He said: "Maintaining reform pressure and reducing risks before establishing a common safety net certainly extends beyond eliminating the current privileges for sovereign bonds in banking regulation. It pertains to all excessive risks currently identified in national banking systems. These remarks do not mean that I am dead set against a reform of deposit insurance. I am talking about putting the reforms in the right sequence. So my first point is that if we want to improve the structural design of the euro area, we need to address the sovereign-bank nexus—amongst other things—before we create a European deposit insurance scheme." Therefore, addressing sovereign concentration risks on banks' balance sheets should be a top priority in further reforming the euro area financial architecture. He proposed to rectify an imperfect financial architecture, which he believes is not an easy task. 

Mr. Dombret believes that European supervisors should not hesitate to vigorously pursue the issue of non-performing loans, or NPLs. He acknowledged the considerable progress being made by banks in cleaning up their balance sheets in 2017—not only because mounting supervisory pressure forced them to do so, but also because the improvement in asset quality creates long-term value for their stakeholders. He added that "... let us not dwell on supposed European conflicts of interest surrounding the treatment of NPLs. I propose that we see this as a conflict between short-term and long-term regional interests. Therefore, I strongly support the take of European supervisors on this matter." He then highlighted that resilience is not a state, but a process. From the viewpoint of a banking supervisor, even though a lot of the daily work is centered on capital requirements, cyber risks and other IT-related risks are quite special; this is because even adequate capitalization in banking systems does not prevent IT-related financial stability issues from occurring (such as downtimes in payment systems). Thus, financial supervisors need to target those risks in a direct way, pushing the financial sector to make incidents less likely and emergency responses as effective as possible. He concluded by highlighting the advantages of European cooperation and providing citizens with the tools they need to understand and classify issues around Europe.


Related Link: Speech

Keywords: Europe, Banking, NPL, MREL, EDIS, Financial Architecture, Financial Stability, Bundesbank, BCBS

Related Insights

BCBS Finds Liquidity Risk Management Principles Remain Fit for Purpose

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose.

January 17, 2019 WebPage Regulatory News

HKMA Urges Local Banks to Start Working on FRTB Implementation

HKMA announced that it plans to issue a consultation paper on the new market risk standard in the second quarter of 2019.

January 17, 2019 WebPage Regulatory News

EBA Finalizes Guidelines for High-Risk Exposures Under CRR

EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures.

January 17, 2019 WebPage Regulatory News

MAS Guidelines on Risk Mitigation Requirements for OTC Derivatives

MAS published guidelines on risk mitigation requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts.

January 17, 2019 WebPage Regulatory News

BoE Publishes the Schedule for Statistical Reporting for 2019

BoE published the updated schedule for statistical reporting for 2019. The reporting institutions use the online statistical data application (OSCA) to submit statistical data to BoE.

January 16, 2019 WebPage Regulatory News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News

SNB Updates Forms on Supervisory Reporting for Banks

SNB published Version 1.7 of reporting forms (AUR_U, AUR_UEA, AUR_UES, AURH_U, AUR_K, AUR_KEA, and AURH_K) and the related documentation for supervisory reporting on an individual and consolidated basis.

January 15, 2019 WebPage Regulatory News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2473